Stratasys has announced that its Board of Directors, after careful review and consultation with its independent financial and legal advisors, has unanimously determined that the May 30, 2023 ‘unsolicited non-binding indicative proposal’ from 3D Systems Corporation to acquire Stratasys does not constitute a “Superior Proposal” and does not provide a basis upon which to enter discussions with the company, pursuant to the terms of the merger agreement with Desktop Metal.
Stratasys entered into a merger agreement with Desktop Metal on May 25, 2023. The companies agreed to combine in an all-stock transaction. Stratasys says that its board has not changed its unanimous approval, recommendation and declaration of advisability of the deal with Desktop Metal.
Stratasys hosted a webinar at 10:30 AM ET on June 20 to discuss the details of the 3D Systems proposal and the pending combination with Desktop Metal. During the webinar, Stratasys CEO Yoav Zeif said: “Through extensive analysis of the metal landscape, we believe Desktop Metal has the best and most advanced technology for mass production.”
Stratasys has also filed a preliminary Form F-4 with the U.S. Securities and Exchange Commission and certain revenue and EBITDA estimates for its proposed combination with Desktop Metal, Inc., which it says will create a “next-generation” additive manufacturing company with enhanced growth and profitability.
Stratasys says that the merger with Desktop Metal will advance the company’s strategy of leading additive manufacturing into mass production.
Also in the company’s statement, which was released around four hours after 3D Systems issued an update to its shareholders on its proposal to acquire the company.
Stratasys included in its statement highlights from the pre-recorded investor presentation:
- Metal Technology Gives Combined Company Comprehensive Solutions Offering: Stratasys’ mission to lead additive manufacturing into mass production will be accelerated by having a leading metal manufacturing solution alongside its robust polymer offering. Stratasys has been interacting with Desktop Metal for eight years and began reviewing its metals technology more than two years ago. After extensive analysis of the metal landscape, Stratasys believes Desktop Metal has the best and most advanced technology for metal mass production. With low cost per part, a diversified product offering and superior consistency and reliability, Desktop Metal’s binder jetting offering fulfills key requirements for manufacturing. With Desktop Metal’s high-growth metals portfolio, Stratasys’ total addressable market for manufacturing is expected to double by 2027.
- Financial Estimates Reflect Base Case of Revenue and EBITDA for Combined Company Used by the Stratasys Board in Evaluating Desktop Metal: The combination creates an at-scale growth additive manufacturing company that is expected to generate more than $1.6 billion of revenue and more than $300 million of EBITDA in 2026 at base case, for a 20% pro forma EBITDA margin. This growth reflects a top-line compound annual growth rate (“CAGR”) of 19% from 2022 to 2026, compared to an estimated 14% CAGR for standalone Stratasys over the same period. These estimates include $50 million in run-rate cost synergies and $50 million in run-rate revenue synergies expected to be fully realized by 2025. Even in the downside case, the combined company is expected to generate more than $1.4 billion of revenue and $200 million of EBITDA in 2026, for a 14% pro forma EBITDA margin. The expected synergies are in addition to Desktop Metal’s $100 million annualized cost savings plan, of which $75 million has already been captured, enabling generation of positive operating cash flow in the 12 months following the close of the combination.
- Significant Expansion in Stratasys’ Dental Opportunity: Beyond its leading metal technology, Desktop Metal has a strong and diversified portfolio, with approximately 70% of its business consisting of leading positions across dental and digital castings verticals, and premier technology in large format industrial photopolymer. In particular, the combination significantly enhances Stratasys’ offering in the rapidly growing dental vertical, which comprises 35% of Desktop Metal’s business, and has an expected market CAGR of 30% from 2022 to 2027. Together with Stratasys’ material roadmap from its recent acquisition of Covestro’s additive manufacturing business, Desktop Metal’s chairside and lab dental solutions expand Stratasys’ dental addressable market, including through penetration of the $30 billion crown and bridges market, enhancing gross margin and generating additional recurring revenue.
- Expansive and Complementary IP Portfolio with Robust Innovation Engine: Desktop Metal’s innovative portfolio and pipeline stands out among additive manufacturing players, with strong IP across applications. Desktop Metal continues to develop breakthrough technologies to augment its young, manufacturing-focused portfolio, with recent significant developments across metal binder jetting, binders, furnace and software technologies, among others. The combined company will have more than 3,400 active patents and pending patent applications and one of the largest R&D and engineering teams in the industry, with over 800 scientists and engineers focused on driving innovation.
- Innovation and Growth Assets Complement Enhanced Market Access: In addition to its leading polymer capabilities and broad portfolio of technologies and solutions, Stratasys has the best operations and go-to-market capabilities in the industry. Stratasys and Desktop Metal are the two most innovative companies in additive manufacturing and will combine to form the first company covering the full manufacturing lifecycle, with enhanced market access and more than 27,000 industrial customers across industries and applications.
Stratasys said that under the terms of the previously announced merger agreement with Desktop Metal, DM shareholders will receive 0.123 ordinary shares of Stratasys for each share of Desktop Metal Class A common stock. The merger, which is expected to close in the fourth quarter of 2023, is subject to customary closing conditions, including the approval of Stratasys’ shareholders and Desktop Metal’s stockholders, as well as the receipt of certain governmental and regulatory approvals.
As announced on May 30, 2023, Stratasys has recommended its shareholders do not tender shares into the partial tender offer submitted by Nano Dimension, and that they file a notice of objection to express opposition to the offer.
The company referred to the Nano Dimension offer as “unsolicited, inadequate, and coercive” and reiterated this in its press release: “Under Israeli tender offer rules, Nano’s tender offer will fail if the shares covered by submitted Notices of Objection are greater than or equal to the number of shares tendered in the offer.”
Read more:
May 25 - Stratasys and Desktop Metal to merge in deal worth $1.8 billion
June 2 - Interview: Stratasys CEO Yoav Zeif details the strategy behind Desktop Metal merger
June 2 - 3D Systems makes Stratasys takeover attempt
3D Systems issued another statement in response to Stratasys saying that its offer was not a "Superior Proposal", late into the night on June 20, with the company reaffirming its commitment to a combination with Stratasys.
3D Systems President and CEO Dr. Jeffrey Graves said: "We are disappointed that the Stratasys Board has taken this step, particularly in light of the tremendous value of our proposed transaction, the broader skepticism of the merits of a Stratasys and Desktop Metal combination expressed by the market, and the overwhelmingly positive reaction to our proposal. We remain undeterred in our belief that a transaction between 3D Systems and Stratasys on the terms proposed constitutes a 'Superior Proposal'."
As reported by Seeking Alpha, an analysis report by Credit Suisse looked into the Form F-4 filing from Stratasys, and it was revealed that 3D Systems made 'several attempts' to acquire Stratasys in 2021 and 2022, but Stratasys ultimately walked away from the offers.
Dr. Graves added: "We continue to believe that a combination between 3D Systems and Stratasys offers shareholders the best blend of immediate value, potential for long-term growth, and certainty to close. We believe the overlap between 3D Systems' and Stratasys' technologies has been mischaracterised by Stratasys, as well as the potential from the highly experimental Metal Binder Jet technology. It is our view that shareholders want actionable, believable value creation plans and are already skeptical of the wildly optimistic management projections underpinning Stratasys' presentation to investors today. Our combination is founded on straightforward benefits of scale with clear cost synergy estimates that have been jointly reviewed, quickly actionable, and plainly more valuable to shareholders."
In the response from 3D Systems, the company included the full text of its letter to the Stratasys Board on May 30, which detailed the proposed combination offer. The company said it included the letter 'in light of the mischaracterisations made by Stratasys in its rejection of 3D Systems' proposal', and believed it necessary so shareholders to evaluate the proposed combination with 'complete information' and understand the history of engagement between the two companies. The full letter and statement from 3D Systems can be found here.
Dr. Graves concluded: "In our view, it is highly relevant for our investors to understand that the confidence behind our proposal comes from in-depth, prior engagement with Stratasys' management team. As disclosed today by Stratasys, we have been exploring this combination for the past two years and have tried multiple times, unsuccessfully, to engage constructively with Stratasys' Board and Management to deliver both sets of shareholders the benefit of this combination. We, together with Stratasys, evaluated at length the foundational strategic rationale for this combination, including estimated cost synergies of at least $100M, which were previously identified by members of management of both companies during meetings in September 2022.
"We feel the overwhelming merits of our proposed combination were mischaracterised by Stratasys in its rejection of our proposal and we believe the Stratasys Board should have concluded that our bid would reasonably be expected to result in a 'Superior Proposal', under the terms of the Desktop Metal merger agreement. That said, we remain flexible and are open to engaging in productive discourse with the Stratasys Board in pursuit of a friendly, negotiated transaction. We continue to consider all of our options to make this combination a reality."
